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3 Defensive Plays In Case Of A Scottish ‘Yes’ Vote

Scotland

With the Scottish referendum less than 24 hours away, it still seems as though the outcome is simply too close to call. Indeed, there appears to be a rather large number of ‘undecided’ voters even at this late stage who could swing it either way.

If Scotland does vote ‘yes’ then there is likely to be a correction of sorts in the stock market. Many investors believe that this could be the start of a period of prolonged uncertainty for the UK and could reduce the country’s growth forecasts over the short to medium term. With this in mind, here are three stocks that could ride out the effects of a ‘yes’ vote better than most.

British American Tobacco

Whether Scotland votes ‘yes’ or ‘no’, it is likely to have zero impact on British American Tobacco’s (LSE: BATS) sales. Indeed, the company experienced little negative effects from the global financial crisis, with earnings per share (EPS) increasing at an average rate of 11% per annum over the last five years. Therefore, it seems as though the company’s sales will hold up well even during the worst financial periods.

However, there’s more to British American Tobacco than a resilient business model. Its foray into e-cigarettes holds huge potential and, as an early entrant to the market, British American Tobacco appears to have stolen a march on its rivals and is successfully building customer loyalty. With shares in the company trading on a price to earnings (P/E) ratio of 17.1 and yielding 4%, they seem to be worth buying at present.

Centrica

You’d have thought that a domestic energy supplier such as Centrica (LSE: CNA) would attract little attention. After all, the provision of gas and electricity is hardly exciting. However, with people’s disposable incomes being squeezed, domestic energy prices have hit the headlines. This has led to promises of price freezes and a tougher regulator from the Labour party, which makes Centrica’s future look rather uncertain.

Despite this, the company appears to be a sound buy right now. That’s because its current share price appears to reflect the political risk (the P/E is currently just 12) and, furthermore, the stock has a beta of just 0.4. This means that, if the FTSE 100 does fall following a ‘yes’ vote, Centrica should fall only 0.4 times as much as the wider index, thereby highlighting its attractive defensive qualities.

Diageo

Whichever side you’re on and whatever the result, alcohol will be consumed. Indeed, Diageo (LSE: DGE) continues to offer relatively stable earnings come economic rain or shine. However, the company also offers strong growth potential, with its premium range of spirits proving to be particularly popular in emerging markets.

Certainly, shares in the company are not cheap, with them trading on a P/E of 18.4. However, with sector peer, SABMiller, having a P/E of over 20 there could still be upside from a rating revision. This mix of growth potential and resilience could prove to be highly attractive in the case of a ‘yes’ vote.

 

Of course, British American Tobacco, Centrica and Diageo aren't the only stocks that could prove to be resilient and impressive performers in your portfolio in a post-referendum stock market.

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Peter Stephens owns shares of Centrica and British American Tobacco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.